What Jack Ma can teach banks about the

role of branches and growth

By: Brett King
March 2015

BRETT KING

CEO/FOUNDER OF MOVEN AUTHOR,
SPEAKER, RADIO HOST

 

Brett King is a bestselling author, American Banker’s Innovator of the Year for 2012 and the founder of the direct mobile bank Moven. He is an International Judge for the GSMA Global Mobile Awards, the Asian Banker Retail Excellence Awards and for the Middle East Business Achievement Awards.

A global thought leader in financial services and customer experience, King is a sought after expert on innovation, technology disruption, customer experience and channel distribution strategy. He publishes regularly in his role as industry advisor on Huffington Post, Internet Evolution, Seeking Alpha, American Banker, FinExtra and his personal blog Banking4Tomorrow.com.

A global thought leader in financial services and customer experience, King is a sought after expert on innovation, technology disruption, customer experience and channel distribution strategy. He publishes regularly in his role as industry advisor on Huffington Post, Internet Evolution, Seeking Alpha, American Banker, FinExtra and his personal blog Banking4Tomorrow.com.

I’m in Boston today and visiting with some folks from a bank that has decided to double down on the branch model. They said that they ‘intend to use old-school branches, plus a more aggressive IT budget to beat off competition’ from tech start-ups, platforms and pure-plays. I challenged my contacts to defend this position, and while there was some acceptance of the fact that branch numbers are in decline, there was a undeniable hope that the branch network if done right could be ‘saved’ and with investment in technology could even become a differentiator once again.

Here’s the thing – the attackers are attacking the distribution model, so a plan that articulates doubling down on a model that is already showing itself to be inefficient or that is being challenged is problematic. Herein Lies the problem.

Here’s the thing – the attackers are attacking the distribution model, so a plan that articulates doubling down on a model that is already showing itself to be inefficient or that is being challenged is problematic. Herein Lies the problem.

 

Banks need to understand that the ECONOMICS of banking are fundamentally changing, and doubling down on branches is investing in indefensible modality. If you get a chance check out this sage advice from Alibaba’s founder Jack Ma at the World Economic Forum to the leaders at Walmart (you can find the video here – https://agenda.weforum.org/2015/01/alibaba-founder-jack-mas-business-secrets/)

The message is a simple one. If WalMart wants to get 10,000 new customers they have to build a new warehouse, a number of new storefronts, etc. What does Alibaba do? It adds two servers to its technology stack.

The same is true for banking. If a bank wants to add say 50,000 new customers they have to add a new branch, 4-8 FTEs, and invest over $1m in real-estate and ‘store’. At Moven we need to hire 2 or 3 new community managers and add two servers on our AWS instance. That’s it.

Jack Ma already understands this for banking. His Yu’e Bao Mobile Money Market Fund took in US$93bn in deposits in just 8 months. No branch network in the world has ever come close to that performance in deposit taking. In fact, if you take the top 20 banks in the world with their branch networks collectively, they’ve never come close to that performance. Ergo – there’s no branch network in the world that could compete with AliPay when it comes to deposit taking today.

This is fundamentally a distribution problem. Very soon it will become clear that the economics of branches for acquiring, servicing and onboarding customers is obsolete and expensive. When that happens the market and customers will punish brands that don’t offer their best foot via digital-first. The stock market analysts will put a sell rating on these brands so fast it will make your hair stand on end, and this is why:

When customer relationships can be destroyed with a few clicks of a mouse, banks do not yet seem to react quickly enough. However, if customers are more effectively made aware of the benefits of banking services they can be incentivized to take actions more aligned to their financial health.

This is where gamification comes in, the concept of applying game mechanics and game design techniques to engage and motivate people to achieve their goals.

The concept grew from observing addictive mobile games such as Candy Crush and Fruit Ninja, and seeing the relevance to the financial services industry through behavioral finance research.

The next phase of disruption of businesses is coming through experience design and the incorporation of artificial intelligence or algorithms, which can understand you and advise you contextually on what you best need.

A great example of experience design optimization is Uber. Uber took the problem of getting from A to B and changed not the car, nor the driver, but the experience of the entire journey. From ordering a car where you can see exactly when your taxi will arrive, to removing the need to pull out your wallet or card at the completion of the journey. The best journey experience in the world was designed in an App. For incumbent taxi companies protesting the growth of Uber, why haven’t they responded in kind? Because their process of dispatching drivers, ordering a taxi, paying drivers, getting paid by customers has all been disrupted and it’s too hard to change quickly.

The next bank won’t be a network it will be an experience

I know that there are many executives aggressively pushing these banks to change and there are some very bright people in their Innovation side of the business. So why a press release would double down on branches when the overall message from the bank is anything but a focus on branch business, I can’t understand. I think it must be purely theatrics for the market, but that is a mistake.

In Spain, our example bank’s home market between 2009-2013 almost 11,000 branches were closed, making the decline in branches 24% (and 52% of the Euro’s total branch closures). This doesn’t sound like an economy or a brand that is actually aggressively seeking to support the ongoing viability of branches. It sounds Like a brand trying to tell the market it is business as usual while they scramble for a more effective approach to the problem of retail revenue and relationship.

Ask yourself this question. What was the Last major bank brand to launch with branches as their strategy? Metro in the UK. In late 2014 and early 2015 what have the new banks used as their platform for Launching a competitive model. Think Atom, Starling, BankMobile, Bankwerx, Fidor, and others – they’re all launching on a platform of digital. Why? If you’re Looking for growth or investment you won’t get it launching a branch network today.

That tells you everything you need to know. Investors won’t invest in branch-led banking anymore, so if you’re a bank – you shouldn’t either.